The Department of Labor (“DOL”) published its final rule updating the overtime regulations of the Fair Labor Standards Act (“FLSA”). The significantly increases the minimum salary an employee must be paid in order to be exempt from receiving overtime, and is estimated to affect over 4 million workers. The effective date of the final rule is December 1, 2016.
Key Changes from the Final Rule:
The FLSA requires that all employees be classified as either non-exempt or exempt from overtime requirements. When an employee is classified as non-exempt, the employee’s hours must be tracked, the employee must be paid at least minimum wage for all time worked, and be paid overtime pay for any time worked above forty hours in a seven day work week. Employees classified as exempt from overtime are not subject to these requirements and are usually paid a set annual salary.
Most exempt employees fall under the white collar overtime exemptions (executive, administrative, and professional employees), which require that the employee receive a minimum weekly salary and satisfy a job duties test. The final rule considerably increased the minimum salary threshold under the white collar exemptions:
· The minimum salary level for the white collar overtime exemptions will be $47,476 annually ($913 per week). This is more than double the existing minimum salary of $23,660 ($455 per week).
· The rule does permit up to 10 percent of an employee’s salary to come from non-discretionary bonuses, incentive payments, and commissions, paid at least quarterly. Non-discretionary bonuses are those earned based on objective criteria (typically based on sales figures, productivity, etc) rather than at the employer’s discretion (a discretionary holiday bonus).
· The minimum salary thresholds will be automatically updated by the DOL every three years, with the first update occurring on January 1, 2020. At that time, the minimum salary for the White Collar overtime exemption is expected to be more than $51,000.
The final rule also increases the minimum salary for employees under the “highly compensated” overtime exemption from $100,000 per year to $134,004 per year.
How to Prepare:
There is no phase in period for the new salary thresholds, which means that employers are required to be in full compliance with the new overtime rules on December 1, 2016. That deadline will approach quickly and there are certain action steps we recommend you take now to prepare for the change.
1. Identify Affected Employees
Determine which employees, if any, are currently classified as exempt from overtime but make less than $47,476 per year (or $913 per week).
2. Determine How Many Hours Affected Employees Work Each Week
This might seem simple, but employees exempt from overtime are not required to track their hours and as a result, employers may not be aware of how many hours the employee is actually working. You need to count waiting time, training time, travel time, and other potential “hidden overtime”.
3. Weigh Your Options
For those employees who will be affected by the new rule-those who are currently exempt from overtime but are paid less than $47,476 annually-you have some options as to how to comply with the new rule. For those employees near the new salary threshold, it may make the most financial sense to increase their salary to the new minimum. For other employees, it will likely make more sense to classify them as nonexempt and begin recording all of their worktime. It is also worth considering whether to restructure positions to ensure overtime is less likely for employees who will become nonexempt.
For additional information on the new regulations, how they will affect your business, and how to comply, please reach out to your Dunlap & Seeger contact.